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Chapter 1: Social Security

Issues: Social Security

Overview

Social Security is a self-financed program that provides monthly cash benefits to retired or disabled workers and their family members, and to the family members of deceased workers. The program is authorized under Title II of the Social Security Act, and administered by the Social Security Administration (SSA). (SSA also administers the Supplemental Security Income (SSI) program authorized under Title XVI of the Social Security Act. See Section 3 of the Green Book for a discussion of SSI, a means-tested program for the aged, blind, or disabled.) As of June 2016, there were nearly 61 million Social Security beneficiaries. Of those, 44 million were retired workers and their family members, 11 million were disabled workers and family members, and 6 million were the survivors of deceased workers.[1]

Social Security is financed primarily by payroll taxes paid by covered workers and their employers. In 2015, an estimated 168 million workers were covered by Social Security.[2] Employees and employers each pay 6.2% of covered earnings up to an annual limit ($118,500 in 2016); self-employed individuals pay 12.4% of net self-employment income up to an annual limit ($118,500 in 2016).[3] Self-employed persons may deduct one-half of their Social Security payroll taxes for federal income tax purposes.[4] Social Security is also credited with tax revenues from the federal income taxes paid by some beneficiaries on a portion of their benefits, reimbursements from the general fund of the U.S. Treasury that are made for a variety of purposes, and interest earned on Social Security trust funds’ assets.

Social Security income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund.[5] As the Managing Trustee of the Social Security trust funds, the Secretary of the Treasury is required by law to invest Social Security revenues in interest-bearing federal government securities (special issues) held by the trust funds.[6] The revenues exchanged for the federal government securities are deposited into the general fund of the U.S. Treasury and are indistinguishable from revenues in the general fund that come from other sources. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of federal government securities held by the trust funds.

In 2015, the Social Security trust funds had total income of $920 billion, total expenditures of $897 billion, and accumulated holdings (asset reserves) of $2.8 trillion.[7] Because the assets held by the trust funds are federal government securities, the trust fund balance ($2.8 trillion at the end of 2015) represents the amount of money owed to the Social Security trust funds by the general fund of the U.S. Treasury.

Congressional Research Service (CRS) Reports

The House Ways and Means Committee is making available selected reports by the Congressional Research Service (CRS) for inclusion in its 2016 Green Book website. CRS works exclusively for the United States Congress, providing policy and legal analysis to Committees and Members of both the House and Senate, regardless of party affiliation.

[2] Currently, 94% of workers in paid employment or self-employment are covered by Social Security. Social Security Administration, 2016 Social Security/SSI/Medicare Information, February 2016.

[3] The annual limit on covered wages and net self-employment income subject to the Social Security payroll tax (the taxable wage base) is adjusted annually based on average wage growth, if a Social Security cost-of-living adjustment (COLA) is payable.

[4] Self-employed individuals are required to pay Social Security payroll taxes if they have annual net earnings of $400 or more. Only 92.35% of net self-employment income (up to the annual limit) is taxable.

[5] The OASI and DI trust funds are referred to on a combined basis as the Social Security trust funds.

[7] In 2015, 86% of Social Security’s total income was from dedicated payroll taxes, 10% was from interest earned on trust fund assets, 3% was from federal income taxes paid on Social Security benefits, and the remainder was from general fund reimbursements to the trust funds for a variety of purposes. Of total expenditures, 99% was for benefit payments; the remainder was for administrative expenses and transfers to the Railroad Retirement program. See Social Security Administration, Office of the Chief Actuary, Financial Data For A Selected Time Period.